BP project material growth in its core business from new projects and continued cost cuts that will move its cash-balance point down to US$35-40 a barrel by 2021, the oil major said on Tuesday.
BP's upstream production is expected to grow by average of 5 per cent a year from 2016 to 2021, the firm said in a statement on its website. It expects further performance improvements in the refining and petrochemical manufacturing businesses. Underlying earnings from the manufacturing businesses in 2021 are expected to be $2.5 billion higher than in 2014, BP said.
“We can see growth ahead right across the group. While always maintaining our discipline on costs and capital, BP is now getting back to growth – today, over the medium term and over the very long term,” group chief executive Bob Dudley said.
The firm expects growth in its upstream division to come from a continuing series of major higher-margin project start-ups, while in the downstream, it expects to deliver strong marketing-led growth.
Production ramping up from new upstream projects is expected to deliver a material improvement in BP’s operating cash flow through the second half of 2017, the firm said, adding that it intends to maintain its existing financial frame throughout the five years to 2021, with organic capital expenditure kept within a range of $15-17 billion a year and the target band for gearing remaining at 20-30 per cent.
Brian Gilvary, BP chief financial officer, said: “Last year we delivered our targeted $7 billion reduction in cash costs a year early, and capital spending was $8.6 billion lower than its peak in 2013 – without damaging our growth pipeline. We will continue that tight focus on costs and capital discipline and seek further improvements throughout the group.”
Gilvary said BP expects the combination of continued cost discipline with the growing cash flow from core businesses - and the recent portfolio additions - will steadily drive down the cash balance point of the business. “Over the next five years we expect this to fall to around $35-40 a barrel for the Group overall,” he said.
In its annual results announcement in early February, BP had raised its 2017 break-even oil price to $60 from $50-55 a barrel.
Volume and margin growth throughout BP’s businesses are expected to increase returns over the next five years. Assuming a stable price environment and portfolio, BP now expects return on average capital employed (ROACE) for the group to recover steadily over the next few years and to be over 10 per cent by 2021.